In business, we’ve all had that voice of reason tell us at some point that doing it for the money will inevitably result in disappointment. Now, of course there are anomalies to this but as a general rule, it really couldn’t be more correct. What history has shown us is that people who simply chase money will likely have a short lifespan. Organizations that chase just money are not only risking a short lifespan, but they are also a weapon of mass destruction. We saw this first hand with the financial collapse of 2008.
When free enterprise economics was created, it was generally based on the sale of a ‘widget’ that held monetary value such as a house or a car or an ice cream cone. A consumer would ultimately consume said product, therefore realizing its benefit/value. Organizations were incentivized to enhance the product to differentiate from their competitors. A simple system indeed. Fast forward multiple decades and now the single greatest instrument of economic wealth in our system is founded by various complex financial instruments comprised of keystrokes and money that technically doesn’t even exist.
Why was it established this way? There are numerous factors, not the least of which being a need to diversify the origin of wealth in a globalized economy but it’s really much simpler than that. It was a way to create perceived value to a consumer in order to make a short run economic gain. Did leading economists think you could sustain a system like that? No. It was a way for big corporations to make short term gains, and keep a stock trading at a value on par with their egos. That last point is very important – the dollars drive their egos.
Now move from Manhattan, to Palo Alto and the difference can be summarized quite simply: the products drive their egos, and sustainable dollars predictably follow. Simon Sinek, a popular author with the “Golden Circle” concept, believes that companies who focus on why they do what they do rather than what they do are destined for success. If you focus on the why rather than the what, you are inherently focusing on why your product has value, not what the value you will sell it for. Sustainability is built into the model.
Effectively, if your organization is thinking about what personal value the end-consumer receives from your product (the “why”) you are systematically building a framework that fosters innovation. Understanding that society is constantly changing, your ability to objectively and persistently analyze the net benefit of your product will ensure, quite simply, that you are able to incessantly provide consumer benefit. One way of looking at it is this: Lehman Brothers created products that made enormous short run profits and we all know how that story ended. Companies like Apple and Google make products that change the world. Not only did they make a better product, they made more money.
Economics teaches us that capitalist economies are virtually designed to “boom and bust”. It teaches us that organizations are indebted to providing profits for shareholders. My question, and I am very much a capitalist, is why is it increasingly based on short run returns? If we collectively shift the paradigm from a short-run perspective to a long-run perspective the time gaps between the boom and the bust would be much greater, and the lifetime economic shareholder returns would be much greater as well.
By Carson McPherson